Andersen execs aired concerns

Enron `intelligent gambling' was topic in February

Andersen's troubles continued to worsen Thursday as it became clear that several top executives in the Chicago headquarters knew as early as February of the controversial partnerships that ultimately led to the energy trader's collapse.

Also Thursday, Enron said its board voted to fire the accounting giant as the company's auditor, effective immediately. In light of disclosures that Andersen executives destroyed documents sought in the government investigation of the Houston-based company, Enron Chairman Kenneth Lay said in a statement, "We can't afford to wait any longer."

But the firing was an empty gesture, according to Andersen Chief Executive Joseph Berardino, since the business relationship between the two firms ended when Enron filed the largest corporate bankruptcy ever on Dec. 12.

Seeking to defend the embattled accounting firm, Berardino said in an interview Thursday that he was unaware until a few days ago that Sherron Watkins, a top executive of Enron, had raised questions about the accounting treatment of the company's finances.

He also said a high-level review of the Enron account conducted nearly a year ago in which Andersen executives described the energy company's trading activity as "intelligent gambling" was performed merely in the normal course of business.

The Big Five accounting firm has faced harsh criticism in recent weeks for its handling of Enron's books. It faces investigations by the Justice Department, the Labor Department, the Securities and Exchange Commission and several congressional panels.

Andersen said Tuesday it would fire David B. Duncan, the partner in charge of the account, for ordering the destruction of documents. It also suspended three other partners and announced plans for a new management team in its Houston office.

Duncan was among those participating in the Feb. 5 meeting in which key Chicago- and Houston-based partners discussed Andersen's potential conflicts and those of Enron's chief financial officer, Andrew Fastow.

The next day, Andersen partner Michael Jones described the meeting in an e-mail to Duncan and Thomas Bauer, one of those suspended Tuesday.

The e-mail highlighted concerns about what was described as "Fastow's conflicts of interest" in heading one of Enron's off-balance sheet partnerships, known as LJM. Andersen partners also questioned the veracity of Fastow's income from LJM.

LJM and other similar partnerships played a key role in the collapse of the energy trader, carrying huge amounts of debt that were kept out of public view in its books.

Among those described as "attendees" via phone were Steve Samek, Andersen's U.S. country managing partner; Gregory Jonas, the firm's audit division chief; and Robert Kutsenda, the firm's global risk management head.

The partners discussed the level of fees Andersen would get for conducting audit, consulting and internal work for Enron--a relationship critics say was fraught with potential for conflicts.

"We arbitrarily discussed that ... fees could reach a $100 million-per-year amount considering the multidisciplinary services being provided," Jones wrote. "Such amount did not trouble participants as long as the nature of the services was not an issue," the e-mail stated.

Berardino said the meeting was a normal part of handling any audit. "Every year we evaluate every client," said Berardino. "We assess the risk of the client, the issues of the client, the people assigned to the client. The memo is frankly a normal part of our process. It was no secret in our firm."

Berardino said he could not provide "an exact date" when the Chicago headquarters first became aware of the concerns raised in the e-mail about Enron. "We have accounting experts that continually consult, not just with Enron but with all our clients all over the U.S., on highly complex accounting issues. They just happen to be located in Chicago."

Separately Thursday, Andersen sent the House Energy and Commerce Committee two new boxes of documents that contained, among other things, some e-mails written by Duncan that were deleted and then recovered, according to Ken Johnson, a spokesman for the panel.

"Our investigators will be fanning out around the country interviewing people who may have some knowledge of the document destruction," he said.

The committee on Thursday also released the full text of an Aug. 21 memo written by Andersen audit partner James Hecker.

That memo revealed the details of a conversation between Hecker, who was not involved in the Enron account, and Watkins, the Enron corporate vice president who attempted to warn Enron's Lay about the energy trader's perilous financial practices.

Watkins had sought out Hecker, a social acquaintance, as a "sounding board."

According to the memo, Watkins' consternation was heavily focused on the LJM partnership and Fastow's involvement with it. At the time of her conversation with Hecker, Watkins worked for Fastow.